Robbing Peter to Pay Everyone

Schiff had no shortage of ready metaphors, but the one he emphasized came from Bernanke.

“He said not raising the debt limit was like going out, getting drunk with a credit card and then not paying the bill,” Schiff said. “He couldn’t be more wrong. What he’s suggesting we do is go out, get drunk and, when the bill comes, pay Visa with American Express. That isn’t paying down debt, that’s adding to it.”

As I said, he’s a controversial figure. He was right about his earlier prediction of economic collapse, and a hilarious appearance on The Daily Show with Jon Stewart laid waste to his critics at the time. But he’s been wrong, particularly about the depth of the crash, in which he believed the Dow would have a sustained run below 2,000 and the NASDAQ would bottom at 500. Schiff detractors trumpet the “even a stopped clock is right twice a day” cliché.

But if you’re tempted to join them, consider that on the day of our call, a much more tempered piece by Daniel Henninger appeared in The Wall Street Journal essentially saying the same thing—and with the data to back it up.

Citing research by Robert Lucas, the 1995 Nobel laureate in economics, Henninger asks, “What if that first-quarter growth rate of 1.8% is a portent of the U.S.’s long-term future? What if below-normal U.S. GDP is, as the Obama folks like to say, the new normal?” According to Lucas, this unfortunate trend is in fact developing.

I’ll add a few questions to the penultimate graf: Is the “tempered” view the right tack to take? What if shouting from rooftops (and into phones) as Schiff is doing is exactly what’s called for at a critical time like this? As much as I hate to admit it, I’m beginning to agree with the latter.